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16CV25920

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IN THE CIRCUIT COURT OF THE STATE OF OREGON

FOR THE COUNTY OF MULTNOMAH

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WALTER WURSTER, individually;


WALTER WURSTER, as trustee for the
WALTER W. WURSTER REVOCABLE
TRUST; RONALD INOUYE, as trustee
for the WALTER W. WURSTER
IRREVOCABLE TRUST; ZAM
CAPITAL GROUP, LLC, a California
limited liability company; KEITH
BARNES, individually; CUSTOM
STAMPING, INC., a Nevada corporation;
LEE JOHNSON, individually; PAUL
SYLVAN, individually; PAUL GULICK,
individually; PAUL GULICK, as trustee
for GULICK FAMILY TRUST; SHARON
BARNES, individually; JULIE SCHMITZ,
individually; JEFF JOHNSON,
individually;

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COMPLAINT
(Violations of Oregon Securities Laws Under
ORS 59; Violations of Oregon Elder Abuse
Statute Under ORS 124)
CLAIMS NOT SUBJECT TO
MANDATORY ARBITRATION
JURY TRIAL REQUESTED

Amount Claimed: $92,900,000.00


Statutory Fee Authority ORS 21.160(1)(e)
Filing Fee: $1,056

Plaintiffs,

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Case No. _________

v.
DELOITTE & TOUCHE, LLP, a Delaware
limited liability partnership;
EISNERAMPER, LLP, a New York
limited liability partnership; TONKON
TORP, LLP, an Oregon limited liability
partnership; SIDLEY AUSTIN, LLP, an
Illinois limited liability partnership;
DUFF & PHELPS, LLC, a Delaware
limited liability company; and
TD AMERITRADE, INC., a New York
corporation,

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Defendants.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

Plaintiffs hereby allege as follows:

I.

STATEMENT OF THE CASE

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Defendants Deloitte & Touche, LLP, EisnerAmper, LLP, Tonkon Torp, LLP,

Sidley Austin, LLP, and Duff & Phelps, LLC (collectively, the "Professional Defendants"),

provided audit, legal, and valuation services in furtherance of Aequitas Management, LLC's

("Aequitas") investment scheme. Defendant TD Ameritrade, Inc., encouraged investors to

purchase Aequitas securities, provided assurances to investors about Aequitas, and recommended

Aequitas to investors. Because of the fraud, plaintiffs lost collectively over $44,400,000.00 in

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investments plus unpaid interest.

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2.

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Through promotional materials, private placement memoranda, and audited

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financial statements, which were prepared with the assistance and contributions of the

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Professional Defendants, Aequitas perpetrated an elaborate fraud on its investors that included

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but was not limited to the following:

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Aequitas misled investors that their money was being invested in credit
receivables when most of the money was being used to pay off other
investors, to cover operating expenses, and to provide Aequitas executives
the luxuries of a private jet, lavish parties, plush office renovations, and
substantial compensation. Specifically, on information and belief,
Aequitas Commercial Finance, LLC ("ACF"), invested only 25 percent of
investor money in income-generating assets during 2014 and only
8 percent during 2015.

Aequitas sold investors on its "diversified portfolio" of private credit


investments that included healthcare, student loans, and consumer credit
receivables. Yet Aequitas's business was heavily concentrated in student
loan receivables. For example, as of December 31, 2013, reportedly
$153.5 million of investor money was invested in student loan receivables
compared to only $12.4 million in healthcare receivables and $0 invested
in consumer finance receivables.

Aequitas falsely represented that its investments in student loan


receivables were "risk diversified." In reality, the performance of all its
student loan receivables depended almost exclusively on one educational
institution, Corinthian Colleges, Inc.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

Aequitas falsely represented that its securities were liquid assets, when in
reality the ability of Aequitas to liquidate prior investments was dependent
on getting new investor proceeds.

Aequitas mislead investors into believing that its securities were stable and
secure.

Aequitas concealed from investors Corinthian's precarious business


condition and ultimate collapse. Corinthian lost over $120 million
between June 30, 2011, and June 30, 2013, and defaulted on its obligations
to Aequitas on June 10, 2014. Corinthian filed for bankruptcy on May 4,
2015.

Aequitas sold investments that were purportedly secured by the credit


receivables it purchased (including student loans) and falsely represented
that it made arrangements that provided "substantial overcollateralization."

Aequitas misrepresented the value of its student loan receivables through


inflated valuations that were set at the discretion of Aequitas's top
executives. Specifically, Aequitas executives refused to adjust their
valuation of many student loan receivables, even after Corinthian
defaulted and after it went bankrupt.

Aequitas orchestrated intercompany transactions to conceal its true


financial position and to siphon investor funds that fueled Aequitas
executives' lavish lifestyles. For example, Aequitas engineered an
intercompany loan of ultimately $180 million from ACF to its parent,
Aequitas Holdings, Inc. ("Aequitas Holdings"), that, on information and
belief, was used to pay Aequitas's operating expenses. Aequitas reported
the loan as an asset of ACF at "face value" despite, on information and
belief, the following:

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o Aequitas Holdings lost $22.2 million in 2014 and $46.7 million in


2015 and had little or no chance of repaying the loan.

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o The amount due on the loan exceeded Aequitas Holdings' assets by


$20 million in 2014, $60 million at the end of February 2015, and
$100 million at the end of October 2015.

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By 2014, Aequitas's purported management fees dwarfed its income from


operations and net financing revenue. This imbalance should have alerted
defendants that Aequitas's business was failing.

Aequitas concealed that it lacked the ability to cover over $220 million in
redemptions that came due in 2015. Instead, Aequitas continued to sell its
securities through 2013, 2014, 2015, and early 2016 based on
representations of strength, diversification, and growth.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

Aequitas created new investment funds and convinced investors to move


existing Aequitas investments into the new funds, thereby pushing back
the date that Aequitas would ultimately have to repay investors.

At least as early as November 2015, Aequitas was unable to keep up with


redemption requests from investors. Yet Aequitas continued selling
securities to investors as late as January 2016.

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3.
Aequitas sold its securities through general solicitation and as part of a broad,

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continuous, and integrated offering that included online marketing, presentations to large groups,

pressured arrangements with investment advisors, and one-on-one solicitations to accredited and

unaccredited investors, several of whom shared no preexisting relationship with Aequitas. The

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securities should have been registered.

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4.
Through their advice, audits, and assistance with Aequitas's offering materials,

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agreements, corporate formations, financial information, recommendations, and assurances,

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defendants were instrumental in Aequitas's improper solicitation and fraudulent sale of the

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securities to plaintiffs, several of whom are elderly.

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5.
Investors believed that defendants were reputable firms. Aequitas identified and

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highlighted the role of the Professional Defendants in its promotional materials and financial

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statements as Aequitas's auditors, legal counsel, and advisors. References to defendants gave the

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Aequitas investment scheme credibility and the appearance of quality. This credibility and

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appearance of quality, stability, and security induced investors to entrust their money to

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Aequitas.

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6.
By way of example, EisnerAmper and Deloitte enabled Aequitas to sell its

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securities with "Audited" financial information in promotional materials that concealed

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Aequitas's true financial condition, the actual value of collateral purportedly backing

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

investments, and Aequitas's concentration in Corinthian. Duff & Phelps similarly added

credibility to Aequitas's deception by providing asset valuations that were used in Aequitas's

offering materials, while Tonkon and Sidley delivered the legal support necessary to orchestrate

and perpetuate Aequitas's scheme through, among other things, the improper solicitation and sale

of its securities, the preparation of misleading offering materials, and intracompany formation

and manipulation designed to disguise Aequitas's failure. TD Ameritrade facilitated Aequitas's

improper and fraudulent sale of securities by recommending Aequitas to investors and by serving

as custodian of Aequitas investments.

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Through this action, plaintiffs seek to recover damages and attorney fees under
the Oregon Securities Laws and Oregon's Elder Abuse statute.

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II.
A.

PARTIES

Plaintiffs

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8.

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Plaintiffs are a group of investors who all purchased various securities from the

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Aequitas entities in excess of $44,400,000.00. See Exhibit 1, Summary of Plaintiffs'

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Investments, for more information.

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B.

Defendants

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Defendant Deloitte & Touche, LLP, is a Delaware limited liability partnership

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registered to do business in Oregon. On information and belief, Deloitte performed accounting

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services in the state of Oregon that are the subject of this dispute.

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10.

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Defendant EisnerAmper, LLP, is a New York limited liability partnership

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registered to do business in Oregon. On information and belief, EisnerAmper performed

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accounting services in the state of Oregon that are the subject of this dispute.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

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Defendant Tonkon Torp, LLP, is an Oregon limited liability partnership. On

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information and belief, Tonkon performed legal services in the state of Oregon that are the

subject of this dispute.

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Defendant Sidley Austin, LLP, is an Illinois limited liability partnership. On

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information and belief, Sidley performed legal services in the state of Oregon that are the subject

of this dispute.

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Defendant Duff & Phelps, LLC, is a Delaware limited liability company

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registered to do business in Oregon. On information and belief, Duff & Phelps performed

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accounting and valuation services in the state of Oregon that are the subject of this dispute.

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14.

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Defendant TD Ameritrade, Inc., is a New York corporation registered to do

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business in Oregon. TD Ameritrade encouraged investors to purchase Aequitas securities,

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provided assurances to investors about Aequitas, and recommended Aequitas investments to

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investors. TD Ameritrade also served as custodian for certain Aequitas securities.


III.

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JURISDICTION AND VENUE


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This court has personal jurisdiction over defendants because, as described below:

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(a) defendants do business and engage in substantial activities in this state; and (b) the injuries to

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plaintiffs arise out of acts and omissions that occurred within the state of Oregon.

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This court has subject matter jurisdiction over defendants and this action under

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ORS 14.030 because this court has personal jurisdiction over all defendants.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

17.

Multnomah County is a proper venue for the claims for relief under ORS 14.080

because defendants Tonkon, Deloitte, and TD Ameritrade conducted regular, sustained business

activity within the county.


IV.

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A.

FACTUAL BACKGROUND

Aequitas's Operation

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Founded in 1993, Aequitas at all relevant times operated out of its central Lake

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Oswego, Oregon, offices under the leadership of its chief executive officer and president, Robert
Jesenik.

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19.
Aequitas purportedly generated revenue through the sale and management of

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various investment products, including promissory notes and participation interests in Aequitas

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equity funds.

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Aequitas sold investors on an investment strategy that consisted primarily of

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subprime investments in "underrepresented" credit markets, including healthcare, student loans,

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and consumer credit. At one point, Aequitas focused on buying healthcare receivables from

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hospitals around the country. Aequitas emphasized the purported safety of its investments based,

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in part, on recourse agreements that required the hospitals to buy back delinquent receivables.

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Beginning in or around 2011, Aequitas expanded its healthcare receivables

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strategy to student loan receivables, investing heavily in student loan receivables from

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Corinthian, a for-profit education company. Over the years that followed, Aequitas acquired a

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substantial position in Corinthian student loan receivables. Many of these loans were subject to

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recourse agreements with Corinthian.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

22.
Aequitas touted that it operated its "business prudently," assuring investors that

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"[w]hen in doubt," Aequitas would "share morenot less with clients." In addition to applying

"faith-based values throughout" its organization, Aequitas "use[d] innovation and imagination to

conceive and achieve things that did not exist before."

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In reality, Aequitas misled investors and used investors' money for its executives'

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personal gain and vanity, including private jets, extravagant parties and trips, and new offices.

B.

Aequitas's Organizational Structure

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Through the design and engineering of Jesenik, other Aequitas employees, and

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outside legal counsel, including Tonkon and Sidley, the Aequitas operation expanded into a web

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of over 75 interrelated companies, many of which shared overlapping management and

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ownership. Aequitas used its control over this corporate infrastructure to orchestrate

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intercompany transactions between various Aequitas entities, including loans and in-kind

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distributions. A depiction of the "Aequitas Entity Structure" filed by the receiver in SEC v.

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Aequitas Management, LLC, et al., Case No. 3:16-cv-00438, is attached as Exhibit 2.

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25.

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Formed in 2007, Aequitas Management, LLC ("Aequitas Management"), is an

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Oregon limited liability company at the top of Aequitas's elaborate structure. On information

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and belief, Aequitas Management held an 84 percent ownership interest in and exercised control

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over Aequitas Holdings.

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Also formed in 2007, Aequitas Holdings is an Oregon limited liability company

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that directly or indirectly owned all the Aequitas entities that issued securities to investors.

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Aequitas Holdings was the sole owner of Aequitas Capital Management, Inc. ("ACM"), which is

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

an Oregon corporation that was formed in 1993. ACM served as the manager of several

Aequitas entities that issued securities to investors.

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ACM was the sole owner of Aequitas Investment Management, LLC ("AIM"), an

Oregon limited liability company that was formed in 2006. AIM served as an investment advisor

and as manager of certain Aequitas equity funds.

C.

Aequitas's Investment Products

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Aequitas sold promissory notes and ownership interests through the companies

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listed below. The promissory notes and ownership interests issued by Aequitas through these

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companies are securities under Oregon law.

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Aequitas Commercial Finance, LLC

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Wholly owned by Aequitas Holdings, Aequitas Commercial Finance, LLC

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("ACF"), was formed in 2003 as an Oregon limited liability company. ACF was operated as a

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commercial finance company, purportedly targeting "inefficient market conditions" that were

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"underserved by traditional lenders."

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30.

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ACF raised capital through its "Private Notes Program" by issuing promissory

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notes to investors (the "ACF Notes"), which were marketed and sold through private placement

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memoranda ("PPMs"), promotional materials, and other forms of solicitation. The ACF Notes

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paid interest rates ranging from 5 to 15 percent. Investors had the option of receiving quarterly

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interest payments or reinvesting interest at the same rate and receiving the balance when the

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ACF Notes matured. The ACF Notes generally matured from one to five years after issuance.

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Most, if not all, of the ACF Notes included terms that allowed the investor to extend the maturity

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date and an enhanced interest rate in the event of default.

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Complaint
MILLER NASH GRAHAM & DUNN LLP
AT T OR NE YS AT LAW
T : ( 5 0 3 ) 2 2 4 -5 8 5 8 | F : ( 5 0 3 ) 2 2 4 -0 1 5 5
3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

31.
The ACF Notes were purportedly secured by the "entire balance sheet of ACF,"

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meaning that investors held a security interest in all of ACF's right, title, and interest in corporate

assets, both existing and after-acquired.

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As part of its solicitation, Aequitas provided potential investors with PPMs that

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purportedly summarized the general terms of the ACF Notes, Aequitas's corporate structure and

management, and associated risks.

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ACF's PPM dated November 30, 2012, included the following statements, among

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others:

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"Coming out of the credit crisis, Aequitas expanded its focus to include corporate
and institutional borrowers. The Company has completed several transactions
structured to limit credit risk to Secured Note holders and the Company by
purchasing/financing its assets at a discount with recourse to large corporate
balance sheets, leading to significant asset coverage."
"The Company uses proceeds from the issuance of Secured Notes to engage in
various specialty financing transactions, and to provide senior and junior debt and
equity funding for the benefit of its affiliates and its related investment programs.
The activities include but are not limited to:

"Funding or financing the purchase of student loan receivables from


educational providers.

"Funding or financing the purchase of patient-pay receivables from


healthcare providers.

"Funding or financing the purchase of receivables and loan portfolios, or


direct collateralized loan and lease obligations.

"Engaging in other debt transactions and equity investments in third party


private credit strategies and companies.

"Providing working capital and operating liquidity lines of credit to the


Company and its affiliates, including making equity investments in funds
managed by Aequitas Investment Management, LLC, an investment
advisor registered with the SEC."

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AT T OR NE YS AT LAW
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34.
ACF's PPM dated November 30, 2012, also included a "Financial Information

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Summary" that reflected a purported increase in net revenue from $4,792,200 in 2010 to

$13,540,600 in 2011, in addition to a purported increase in "Investment Assets" of $79,927,400

in 2010 to $136,639,900 in 2011. The PPM identified EisnerAmper as ACF's auditor and

Tonkon as its legal counsel. The PPM also identified the financial information with the headings

"Audited," "INCOME STATEMENT," and "BALANCE SHEET" and included financial data

derived from EisnerAmper's combined 2011 and 2012 ACF audit.

35.

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Aequitas issued a supplemental PPM for ACF dated March 1, 2013, that attached

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and restated the same information contained in ACF's PPM dated November 30, 2012, including

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the statements above. The PPM identified EisnerAmper as ACF's auditor and Tonkon as its

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legal counsel. The PPM also identified the financial information with the headings "Audited,"

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"INCOME STATEMENT," and "BALANCE SHEET" and included financial data that was

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derived from EisnerAmper's combined 2011 and 2012 ACF audit.

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36.
Aequitas issued another PPM for ACF dated November 30, 2013, which included

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the same or similar statements as those quoted in paragraph 33 above.

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37.
ACF's PPM dated November 30, 2013, also included a "Financial Information

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Summary" that reflected a purported increase in "total comprehensive income" from $2,498,000

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in 2012 to $14,483,000 in 2013, in addition to a purported increase in "Investment Assets" from

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$208,863,000 in 2012 to $306,523,000 in 2013. The PPM identified Deloitte as ACF's auditor

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and Tonkon as its legal counsel. The PPM also identified the financial information with the

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headings "Audited," "INCOME STATEMENT," and "BALANCE SHEET" and included

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financial data derived from EisnerAmper's combined 2011 and 2012 ACF audit. For example,

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the PPM represented that Aequitas's "Audited 2011" "Gain/(Loss) on Investments," was

"$3,659," while EisnerAmper's combined 2011 and 2012 ACF audit reflected a "Gain on sale of

investments" in 2011 of "3,659,029" dollars. In addition, some of the financial information

provided to potential investors in the ACF PPM was derived from Deloitte's 2013 ACF audit.

For example, the PPM represented that Aequitas's "Audited 2013" "Loans to Affiliates," in

thousands of dollars, was "$120,539," while the balance sheet from Deloitte's combined 2013

and 2014 ACF audit reflected that "Notes receivable, affiliates" in 2013 was "$120,539,015."

38.

During 2014, Aequitas also provided potential investors with promotional

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material for ACF dated August 28, 2014, that included the following statements under the

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caption "Why Private Credit":

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"Financings are privately negotiated and are secured by significant equity and/or
underlying assets pledged as collateral underneath them. The pool of assets is
often comprised of self-liquidating assets.

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"A diversified portfolio of private credit instruments can provide substantial yield
pickup over public market fixed income securities while still providing strong
collateral and downside protection.

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"Private credit returns are achieved by investing in predetermined, contractual


streams of cash flows at an attractive price. Returns are predictable at the time of
purchase."

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39.

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Touting that "Aequitas' investment vehicles are audited annually by independent

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auditors," the promotional material included the following purported financial information for

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ACF as of June 30, 2014:

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ACF's investment in student loan receivables had a book value of


$137,802,000 that was backed by collateral valued at $280,374,000.

ACF's total assets had a book value of $482,190,000 and were secured by
collateral valued at $646,976,000.

ACF's net assets had a book value of $379,726,000 and were secured by
collateral valued at $544,512,000.

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40.
The student loan receivables were purportedly one of ACF's largest assets. ACF

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purchased the student loan receivables directly, as well as through its subsidiary ASFG, LLC

(later renamed "Campus Student Funding, LLC" ("CSF")). The bulk of the student loan

receivables held by ACF, ASFG, and CSF were subject to a recourse agreement with Corinthian.

41.
At least as early as December 2011, ACF promotional materials sometimes

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included a map of the United States that depicted the nationwide distribution of Corinthian's

campuses. The map made it appear that Aequitas's investments in student loan receivables were

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generated from schools across the country. The map made no mention that all, or nearly all, of

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Aequitas's student loan receivables were purchased from Corinthian and that the "school

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locations" on the map were all, or nearly all, for-profit colleges owned by Corinthian. In fact, the

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map included no mention of Corinthian.

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42.
ACF's purported assets also included debt obligations (through loans or advances)

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owed by various Aequitas entities. For example, ACF funneled money to its parent company,

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Aequitas Holdings, which in turn would provide advances to other Aequitas entities. ACF's

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loans to Aequitas Holdings were purportedly secured by all the assets of Aequitas Holdings.

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43.
In addition, ACF's purported assets included ownership interests that it held in

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various Aequitas entities, including Aequitas Capital Opportunities Fund ("ACOF"); Aequitas

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Income Opportunity Fund ("AIOF"); Aequitas Income Opportunity Fund-II ("AIOF-II");

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CarePayment Holdings, LLC; CarePayment, LLC; Campus Student Funding, LLC; ML

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Financial Holdings, LLC; MotoLease Financial, LLC; and Unigo Student Funding, LLC.

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AT T OR NE YS AT LAW
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44.
ACM served as the manager of ACF. As compensation for its services, ACF paid

2
3

ACM an annual fee of 2 percent of ACF's assets, in addition to 20 percent of ACF's annual net

income.

45.
The ACF Notes were not registered as securities. ACF was also not registered as

6
7

an investment company under the U.S. Investment Company Act of 1940 (the "Investment

Company Act").

46.
TD Ameritrade encouraged investors to purchase ACF Notes, provided

10
11

assurances to investors about ACF, and recommended ACF Notes to investors.


2.

12

Aequitas Income Opportunity Fund, LP

13

47.
Aequitas formed Aequitas Income Opportunity Fund, LP ("AIOF"), in 2009.

14
15

48.

16

AIOF raised capital by selling five-year promissory notes to investors (the "AIOF

17

Notes"). The AIOF Notes included a provision allowing the noteholder to redeem the note after

18

two years. The AIOF Notes were marketed and sold through promotional materials and other

19

forms of solicitation. The AIOF Notes carried a fixed 10 percent annual interest rate plus the

20

possibility of an enhanced yield. The AIOF Notes were purportedly secured by all assets of

21

AIOF and characterized as "senior secured." Some, if not all, of the AIOF Notes included terms

22

that allowed the investor to extend the maturity date.

23

49.

24

According to its audited financial statements, AIOF purchased or participated in

25

financing the purchase of student loan and healthcare receivables and purchased or participated

26

in financing other senior secured loans and consumer and commercial receivables.

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50.
With respect to AIOF's investment in student loans, AIOF's promotional materials

2
3

stated, "[A]ll delinquent student loans are recoursed back to the school, creating a situation

where the risk of non-performance shifts from the student to the balance sheet of the school. The

estimated recourse amount, when viewed with the cash balance sheet results in an effective

recourse coverage of two times."

51.
AIOF's promotional materials also characterized its investment in student loan

8
9

receivables as "risk diversified." At least as early as June 2011, promotional materials

10

sometimes included a map of the United States that depicted the nationwide distribution of

11

Corinthian's campuses. The map made it appear that Aequitas's investments in student loan

12

receivables were generated from schools across the country. The map made no mention that all,

13

or nearly all, of Aequitas's student loan receivables were purchased from Corinthian and that the

14

"school locations" on the map were all, or nearly all, for-profit colleges owned by Corinthian. In

15

fact, the map included no mention of Corinthian.

16

52.
AIOF invested in Aequitas Corporate Lending, LLC ("ACL"), which invested in

17
18

subsidiaries of ACF and ACOF, including EDPlus Holdings, LLC. In addition, AIOF lent

19

money to ACF. ACF's debt obligations to AIOF were purportedly secured by ACF's student

20

loan receivables and the cash flows generated by MotoLease. ACF was also AIOF's sole

21

member.

22

53.
On information and belief, the AIOF Notes were not registered as securities, and

23
24

AIOF was not registered under the Investment Company Act.

25
26

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54.
AIM managed AIOF. AIM received a fee for its services as manager equal to

2
3

2 percent annually of all the assets of AIOF.


3.

Aequitas Capital Opportunities Fund, LP

55.
In late 2013, Aequitas formed Aequitas Capital Opportunities Fund, LP

6
7

("ACOF"). ACOF raised capital by selling ownership interests. ACOF, in turn, used investor

capital to purchase equity interests in certain companies that had previously been held by other

Aequitas entities. ACOF's portfolio companies have included but not been limited to the

10

following:
(a)

11
12

healthcare accounts receivable servicing business;


(b)

13
14

CarePayment Technologies, Inc. ("CPYT"), a company that operated a

EDPlus, a company that partnered with CSF to finance purchases of

student loan receivables from Corinthian and at various times did business as Unigo;
(c)

15

ETC Global Group, LLC ("ETC"), a company that facilitated high

16

frequency trading, profiting from transaction fees paid by clients and rebates paid by securities

17

exchanges;
(d)

18

MotoLease, LLC ("MotoLease"), a company that offered leasing to near-

19

prime and subprime consumers to acquire recreational vehicles, such as ATVs and motorcycles;

20

and
(e)

21
22

model portfolios for smaller investment managers and advisors.

23

56.
ACOF's purported profits and value derived primarily from its ownership interests

24
25

Strategic Capital Alternatives, LLC ("SCA"), a company that developed

in CPYT, EDPlus, ETC, MotoLease, and SCA.

26

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57.
Aequitas marketed and sold ACOF ownership interests (the "ACOF Interests")

2
3

through PPMs, promotional materials, and other forms of solicitation. The ACOF Interests

offered a "preferred return" of 8 percent annually. The ACOF partnership expired after seven

years, and limited partners, including private investors, could not withdraw from the partnership

before that expiration.

58.

As part of its promotion of ACOF, Aequitas provided potential investors with

PPMs that summarized the general terms of the investment opportunity, Aequitas's corporate

10

structure and management, and associated risks.

11

59.
ACOF issued a PPM dated February 2014 that informed investors that "capital

12
13

committed to [ACOF] will be allocated to both existing and new investments, with a significant

14

portion of invested capital funding growth investments in [ACOF's] portfolio companies."

15

60.
With respect to EDPlus, ACOF's PPM provided the following statements:

16
17

"Relative to the finance function of the company, EDPlus partners with Campus
Student Funding, LLC[], which finances purchases of new and seasoned private
student loans on both full-recourse and non-recourse bases.

18
19

"Today, all of the recourse loans that are purchased are cross-collateralized with
all other loans purchased from the respective educational institution. If an
educational institution is unable to honor its recourse obligation, [Campus Student
Funding] would be entitled to all of the cash flows from the loans until all of the
remaining individual loans were fully repaid. By structuring the purchase of the
loans at a significant discount that provides substantial over-collateralization, CSF
is able to mitigate the risk of an educational institution not meeting its obligation
to repurchase severely delinquent loans."

20
21
22
23
24

61.
All, or nearly all, of the student loan receivables that EDPlus was involved with

25
26

were from Corinthian.

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62.
ACOF's February 2014 PPM included valuations for its various portfolio

2
3

companies and "Performance Metrics" supposedly supporting those valuations. The

performance metrics purporting to support the valuation of EDPlus reflected a purported increase

in assets under management from $247,675,768 as of December 31, 2012, to $300,759,670 as of

November 30, 2013. These figures were based on the "face value of outstanding receivables."

63.

ACOF's February 2014 PPM advertised that Duff & Phelps had been engaged to

"provide an estimated range of fair values" for some of ACOF's portfolio companies, including

10

EDPlus. Duff & Phelps's valuation ranges were provided to investors in the PPM.

11

64.
ACOF's February 2014 PPM and other promotional materials provided to

12
13

investors also touted Deloitte as its auditor and Sidley as the legal advisor to ACOF's general

14

partner (Aequitas Capital Opportunities GP, LLC) and its investment advisor (AIM).

15

65.

16

ACOF's February 2015 PPM supplement explained that the December 31, 2013,

17

valuations in the PPM were "audited by an independent auditor." This independent auditor was

18

Deloitte.

19

66.

20

In addition, the February 2015 PPM supplement explained that "Duff and Phelps

21

provided an estimated range of fair values for" CPYT, Unigo, and ETC, and that "the valuations

22

listed [in the PPM] are within the estimated ranges provided by Duff and Phelps."

23

67.
The ACOF Interests were not registered as securities. ACOF was not registered

24
25

as an investment company under the Investment Company Act.

26

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68.
AIM served as the investment advisor for ACOF. AIM received a fee for its

2
3

services as the investment advisor equal to 2 percent annually of all capital commitments from

limited partners.

4.

Aequitas Income Opportunity Fund II, LLC

69.
Aequitas formed Aequitas Income Opportunity Fund II, LLC ("AIOF-II"), in

7
8

2014.

70.
AIOF-II raised capital by issuing notes to investors (the "AIOF-II Notes"), which

10
11

were marketed and sold through PPMs, promotional materials, and other forms of solicitation.

12

The AIOF-II Notes paid 10 percent annual interest on 12-month notes. Investors could receive

13

quarterly interest payments or reinvest interest at the same rate and receive the balance at

14

maturity. The AIOF-II Notes were for a 12-month minimum, but no note could have a term

15

extending beyond September 30, 2024. Most, if not all, of the AIOF-II Notes included terms that

16

allowed the investor to extend the maturity date.

17

71.
The AIOF-II Notes were purportedly secured by a lien on all assets of AIOF-II.

18
19

The AIOF-II Notes were characterized as "senior secured" with first priority security interest in

20

all assets of the fund. The AIOF-II Notes were subordinate to certain "senior lenders."

21

72.
According to AIOF-II's PPM dated October 1, 2014, AIOF-II was formed to

22
23

"purchase or finance the purchases of receivables, loans and leases from various credit strategy

24

programs, including but not limited to, hospitals, educational institutions and other businesses."

25

Aequitas's strategy included AIOF-II's lending money to ACF and its subsidiaries, which would

26

then use those proceeds to "acquire portfolios of Credit Strategy Receivables."

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73.
AIOF-II's PPM dated October 1, 2014, included the following statement relating

2
3

to the AIOF-II investment in student loan receivables:

"All of the recourse loans that are purchased are cross-collateralized with all other
loans purchased from the respective school. If a school is unable to honor its
recourse obligation, Aequitas would be entitled to all of the cash flows from the
loans until all of the remaining individual loans were fully repaid. By structuring
the purchase of the loans at a significant discount which provides substantial overcollateralization, Aequitas is able to mitigate the risk of a school not meeting its
obligation to repurchase severely delinquent loans."

74.

5
6

All, or nearly all, of the student loan receivables were from Corinthian.

9
10

75.
AIOF-II's PPM identified Deloitte as its auditor and Tonkon as its legal counsel.

11
12

76.
The AIOF-II Notes were not registered as securities. AIOF-II was not registered

13
14

under the Investment Company Act.

15

77.
AIM managed AIOF-II. AIM received a fee for its services as manager equal to

16
17

2 percent annually of all the assets of AIOF-II.


5.

18

Aequitas Private Client Fund, LLC

19

78.

20

Aequitas Private Client Fund, LLC ("APCF"), was formed in 2015.

21

79.
APCF raised capital by issuing notes to investors (the "APCF Notes"), which

22
23

were marketed and sold through PPMs, promotional materials, and other forms of solicitation.

24

The APCF Notes carried either a fixed interest rate of 12 percent or a fixed interest rate of

25

8 percent, with an enhanced yield of up to 7 percent based on the annual profits of the fund.

26

Investors had the option of receiving quarterly interest or reinvesting interest at the same rate and

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receiving the balance when the APCF Notes matured. The APCF Notes were for a minimum

three-year term. Most, if not all, of the APCF Notes included terms that allowed the investor to

extend the maturity date.

80.

The APCF Notes were purportedly secured by all assets of APCF. The APCF

Notes supposedly held a "priority security interest" with priority status over certain collateral.

The APCF Notes were also subordinate to certain "senior creditors."

81.

APCF's PPM dated July 31, 2015, marketed its investment strategy, which

10

included the acquisition, purchase, or financing of "credit strategy receivables," including student

11

loan and healthcare receivables. APCF invested in ACOF and its subsidiaries, including EDPlus,

12

by financing and purchasing equity interests.

13

82.

14

To attract investors, Aequitas presented APCF as an exclusive investment

15

opportunity available only to Aequitas's "best clients" that provided more security and stability

16

through better-quality assets and collateral.

17

83.

18

APCF's PPM identified Deloitte as its auditor and Tonkon as its legal counsel.

19

84.

20
21

The APCF Notes were not registered as securities. APCF was not registered
under the Investment Company Act.

22

85.

23
24

AIM managed APCF. AIM received a fee for its services as manager equal to
2 percent annually of all outstanding notes issued by APCF.

25
26

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6.

Portfolio Companies

86.

In addition to the Aequitas entities identified above, ACF and ACOF owned in

part or in whole a variety of companies that supposedly performed services related to the

processing of healthcare or student loan receivables, as well as unrelated finance services (the

"Portfolio Companies").

87.

8
9
10

Aequitas raised capital by issuing equity interests in the Portfolio Companies and
by causing the Portfolio Companies to issue promissory notes (the "Portfolio Securities").
Examples include:

11

CarePayment Holdings, LLC ("CarePayment Holdings"), which was


wholly owned by ACF, issued promissory notes directly to investors
CarePayment Holdings purchased healthcare receivables. ACF
guaranteed millions in loans made by CarePayment's.

ETC Founders Fund, LLC ("ETC Fund"), which was partially owned by
ACF, sold ownership interests directly to investors.

12
13
14
15

88.

16

On information and belief, the Portfolio Securities were not registered as

17

securities, and the Portfolio Companies were not registered as investment companies under the

18

Investment Company Act.

19

D.

Aequitas's General Solicitation and Sale of Its Securities

20

89.

21
22

Aequitas sold promissory notes and partnership interests by pitching itself as a


successful, rapidly expanding, growth-oriented company with a bright future.

23

90.

24
25

From 2012 through 2015, Aequitas solicited and sold its products to thousands of
investors through a broad and multifaceted marketing campaign that included the following:

26

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1.

Online Marketing

91.

3
4

Aequitas operated a website that it used to generally advertise opportunities to


invest with Aequitas in several respects, including but not limited to the following content:

Aequitas touted that "[w]e have created a number of new and innovative
investment opportunities that can add real value to your portfolio."

Aequitas advertised that "[i]ndividuals, advisors and institutions choose


Aequitas because of our deep expertise, impressive track record and
investor-focused solutions."

The website emphasized Aequitas's "focus on high yielding strategies with


education, healthcare and private credit."

Aequitas's website dedicated separate webpages to descriptions of the


markets for healthcare and student loan receivables and included
descriptions of Aequitas's affiliates and partners in those markets.

The website invited potential investors to connect with Aequitas and


provided an online form to obtain more information regarding Aequitas's
"investment opportunities," in addition to a phone number to call.

6
7
8
9
10
11
12
13
14

Through its website, Aequitas engaged in the general solicitation of unaccredited investors.

15

2.

Opening Access to Investment Advisors' Clients

16

92.

17

Aequitas expanded the pool of potential investors significantly by soliciting and

18

making presentations to hundreds, if not thousands, of clients of numerous investment advisors.

19

For example, Aequitas formed networks of investment advisorsincluding Aequitas Capital

20

Partners ("ACP") and Aequitas Financial Services Network ("AFSN")through which Aequitas

21

marketed its products in presentations, seminars, and other communications. On information and

22

belief, Aequitas further formed, owned, paid, and/or lent money to several investment advisors

23

and conditioned its financial support on the sale of a certain number of Aequitas products.

24

Through these activities, Aequitas engaged in general solicitation of accredited and unaccredited

25

investors with whom it had no substantive pre-existing relationship.

26

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3.

Presentations to Groups of Potential Investors

93.

Aequitas pitched its investment opportunities at meetings and events that were

attended by large groups of potential investors. For example, Aequitas presented to a group of

approximately 50 to 100 people in Sun Valley, Idaho during a seminar put on by the

motivational speaker and author Tony Robbins. On information and belief, Aequitas executives

also made the following presentations to the Palm Beach Investment Research Group:

On July 11, 2011, Aequitas made a presentation regarding its "niche in


financing patient-pay hospital receivables in order to increase low
recovery rates."

On May 29, 2014, Aequitas presented regarding its private note program,
which it described as a "high yielding secured debt offering that comprises
a diversified portfolio of private credit investments providing substantial
yield pickup over public market fixed income securities while still
providing strong collateral and downside protection."

On June 26, 2014, Aequitas again made a presentation regarding


"Aequitas Private NoteA high yielding secured debt offering that
comprises a diversified portfolio of private credit investments providing
substantial yield pickup over public market fixed income securities while
still providing strong collateral and downside protection."

On April 30, 2015, Aequitas pitched its "niche credit strategies which
deliver high levels of stable, non-correlated income by way of consistent
quarterly interest payments. Key strategies in healthcare, education, and
financial services feature consumer level financing with contractual risk
mitigation agreements with financially strong institutions."

9
10
11
12
13
14
15
16
17
18
19

Through these presentations, Aequitas engaged in general solicitation of investors with whom it

20

had no substantive preexisting relationship before the solicitation.

21

4.

Hosting Lavish Events

22

94.

23

Aequitas hosted all-expense-paid events, impressing its most valued targets by

24

flying them around on Aequitas's private jet. For example, during at least 2011, 2013, 2014, and

25

2015, Aequitas arranged for travel, golf, dining, and lodging at an exclusive resort in Palm

26

Springs. As part of the event, the attendees were pitched Aequitas investment opportunities.

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5.

By Enlisting Its Executives as Unlicensed Sellers

95.

Aequitas marketed the sale of its securities through presentations and direct

solicitations conducted by its executives. For example, Aequitas executives Bob Jesenik and

Brian Oliver engaged in the regular solicitation and sale of Aequitas securities through numerous

phone calls, presentations, meetings, golf outings, and dinners with investors during 2013, 2014,

and 2015. Neither Jesenik nor Oliver was licensed as a seller or broker of such securities.

96.

9
10

On information and belief, AIOF and ACF securities were marketed and sold to
unaccredited investors, without providing PPMs or subscription agreements.

11

97.

12

On information and belief, Aequitas also solicited and sold its securities to

13

investors with whom it had no substantive preexisting relationship before the solicitation and

14

sale.

15

98.

16

Through the activities listed above and others, Aequitas engaged in a broad,

17

continuous, and integrated offering of its products, as part of the same plan of financing and for

18

the same purpose of selling sub-prime investments in under-represented credit markets, including

19

healthcare, student loans, and consumer credit.

20

E.

Aequitas Is Crippled by Its Overconcentration in Student Loan Receivables

21

99.

22
23

From 2011 through 2014, Aequitas purchased hundreds of millions of dollars of


Corinthian student loans, hitching Aequitas's survival to Corinthian's.

24

100.

25

At the end of 2010, Aequitas reported that it owned $2.7 million in healthcare

26

receivables and no student loan receivables. By the end of 2011, these reported amounts had

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increased to $40.2 million in student loan receivables, compared with $19.6 million in healthcare

receivables. One year later, Aequitas's outstanding student loan receivables had exploded to

reportedly $124.8 million, compared with $27.9 million in healthcare receivables, a ratio of

nearly 4.5 to 1. And at the end of 2013, Aequitas reported that it was carrying $153.5 million in

Corinthian student loan receivables compared with only $12.4 million in healthcare receivables.

Heading into 2014, Aequitas was 12 times more concentrated in student loan receivables than

healthcare receivables.

101.

Aequitas acquired most of the student loan receivables through ASFG, LLC, and

10

CSF. Corinthian agreed to pay Aequitas a "discount" fee on each loan, and the parties' recourse

11

agreement required Corinthian to buy back loans that were delinquent for 90 days.

12

102.

13
14

Starting at least as early as 2010, Corinthian became the subject of public


scrutiny, raising serious concerns about Corinthian's future:

15

In 2010, the U.S. Government Accountability Office (the "GAO")


investigated and testified at congressional hearings regarding the student
recruitment and enrollment practices employed by for-profit colleges. The
GAO released a report in 2010 that publicized its findings that such
collegeswhich included Corinthianused "fraudulent practices" and
encouraged applicants to falsify their financial-aid forms.

At least as early as 2012, state attorneys general had joined Congress in


investigating illegal business practices at Corinthian and other for-profit
colleges. Regulators warned that such a high percentage of students at
these schools were experiencing difficulty paying off their loans that the
schools could lose access to federal student aid. Corinthian's students
were among the worst, defaulting at a rate that was 64 percent higher than
the industry average.

A U.S. Senate investigation in 2012 was particularly critical of Corinthian.


The report stated, "[I]t is unclear that Corinthian delivers an educational
product worth the rapidly growing Federal investment taxpayers and
students are making in the company." The public report further added that
"[i]t is unclear whether taxpayers or students are obtaining value from the
$1.7 billion investment that taxpayers made in Corinthian in 2010."

16
17
18
19
20
21
22
23
24
25
26

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The news media reported extensively regarding Corinthian's predatory


tactics and the growing regulatory pressure. Investors had also taken
notice. From April 2010 to April 2013, Corinthian's share price plunged
nearly 90 percent.

By at least as early as June 2013, the SEC was investigating Corinthian's


business practices, defaults on student loans, and compliance with
U.S. Department of Education financial requirements.

Corinthian lost over $120 million between June 30, 2011, and June 30,
2013.

2
3
4
5
6
7

103.
Meanwhile, Aequitas was experiencing its own significant developments,

8
9

including the following:

10

On information and belief, Aequitas's collection rate on student loan


receivables declined drastically from 2012 to 2013.

Aequitas was defending two lawsuits filed by its partner in the student
loan financing business, American Student Financial Group, Inc.
American Student Financial Group, Inc., claimed that Aequitas had
breached agreements and engaged in other wrongdoing in connection with
an agreement to finance Corinthian student loans. (Tonkon represented
Aequitas in this litigation.)

Several key managers and professionals abandoned Aequitas, including


managing director Thomas Sidley, chief operating officer Steve Hedberg,
and assistant general counsel Jessica Morgan.

17

Aequitas changed its auditors from EisnerAmper to Deloitte.

18

Aequitas formed new entities to attract more investor money, including


ACOF, AIOF-II, and APCF.

11
12
13
14
15
16

19

104.

20

At least as early as August 2012, Corinthian reported to investors that "[t]otal

21
22

losses associated with the program recourse [student loan receivables agreement with Aequitas],

23

inclusive of the discount paid to ASFG, are estimated to be approximately 50% of the amount

24

funded." In other words, Corinthian forecasted that it would have to spend tens of millions of

25

dollars buying back loans from Aequitas that were made to delinquent borrowers.

26

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105.
On June 10, 2014, Corinthian defaulted on its obligations to ACF and Aequitas.

2
3

106.
On July 3, 2014, the U.S. Department of Education issued a press release

4
5

announcing its imposition of certain conditions on Corinthian while "Corinthian works to either

sell or close its campuses across the country in the next six months."

107.
On September 16, 2014, the U.S. Consumer Financial Protection Bureau sued

8
9

Corinthian for misrepresenting job placement data and violating debt collection laws.

10

108.
Aequitas purchased only $8.2 million in student loan receivables during all of

11
12

2014, a 92 percent decline from the prior year. Despite this dramatic drop in new student loan

13

receivables purchases, Aequitas continued to aggressively market its investment products

14

throughout 2014 and 2015, touting its diversification and "substantial over-collateralization" of

15

student loan receivables.

16

109.
On May 4, 2015, Corinthian filed for bankruptcy.

17
18

F.

19

Aequitas Responds to Corinthian's Collapse, and $220 Million in Anticipated


Redemptions Owed to Aequitas Investors, by Selling More Securities
110.

20
21

On information and belief, by 2014 at the latest, Aequitas was using most of the

22

investor proceeds it received to pay other investors and to cover operating expenses rather than

23

using money from investors to purchase credit receivables. On information and belief, ACF

24

invested only 25 percent of investor money in income-generating assets during 2014 and only

25

8 percent during 2015.

26

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111.
In 2015, Aequitas had over $220 million in debt to investors coming due. Rather

2
3

than adjusting its valuations and acting to inform and protect its investors, Aequitas persuaded

investors to extend or roll over their investments. Aequitas misled investors about the health of

Aequitas's business, convincing investors to extend the maturity date of their notes in exchange

for additional interest payments. When Aequitas began missing interest payments in 2015, it

provided false explanations and vague commitments to delay or make up the missed interest

payments.

112.
In 2015, Aequitas created APCF and persuaded investors to roll their existing

10
11

Aequitas securities into it. APCF was marketed as an exclusive opportunity for high-end

12

investors. In reality, APCF was a ploy to avoid making payments to investors by enticing them

13

into rolling their money into a new investment with a later maturity date.

14

113.
Throughout 2014, 2015, and early 2016, Aequitas continued to sell securities by

15
16

touting its investment strategies in credit markets, including Corinthian's student loan

17

receivables.

18

G.

The SEC Sues Aequitas; Aequitas Is Placed Into Receivership

19

114.
By at least as early as June 2015, the SEC was investigating Aequitas.

20
21

115.
In February 2016, Aequitas sent a letter to investors, including plaintiffs, stating

22
23

that it was unable to pay interest or redemptions on the outstanding Aequitas securities.

24
25
26

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116.
On March 10, 2016, the SEC filed a lawsuit, entitled Securities and Exchange

2
3

Commission v. Aequitas Management, LLC, et al., USDC Oregon Case No. 3:16-cv-00438-PK,

against Aequitas and its top executives for securities fraud.

117.
On March 16, 2016, the U.S. District Court for the District of Oregon placed

6
7

Aequitas in receivership.

8
9

118.
H.

Aequitas Concealed Its Deteriorating Financial Condition


With the assistance of defendants and through its control over the many Aequitas

10
11

issuers, lenders, managers, advisors, and holding companies, Aequitas concealed and

12

exacerbated its financial deterioration by, among other misconduct, the following:
1.

13

Inflated Valuations of Trade Receivables and Collateral

14

119.

15

Aequitas's Investment Committee, consisting of Aequitas executives Jesenik,

16

Oliver, and Andrew MacRitchie, controlled and set the value of the receivables. At least by

17

2013, Aequitas used inflated valuations of these purported assets to manipulate Aequitas's true

18

financial condition, thereby falsely presenting a far more successful business than actually

19

existed.

20

120.
For example, Aequitas refused to adjust its asset valuations to account for

21
22

Corinthian's freefall. Aequitas's 2011 and 2012 financial statements, audited by EisnerAmper,

23

stated that Aequitas would not suspend revenue recognition on delinquent student receivables

24

subject to recourse agreements because Aequitas was "reasonably assured" that it would be able

25

to collect on the delinquent receivables through recourse, despite Corinthian's financial struggles.

26

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121.

Similarly, the Investment Committee continued to apply the same misleading

methodology with Deloitte's knowledge and approval, even after Corinthian defaulted on its

recourse obligation in May 2014.

122.
Aequitas reported in its financial statements that its right to retain cash collections

6
7

owed by student borrowers to Corinthian would cover Aequitas's investment and future fees

associated with the student loan receivables. On information and belief, the students who

Aequitas claimed it would collect from were high-risk borrowers that had already defaulted.

10

123.
Deloitte audited the ACF financial statements in which Aequitas made these

11
12

claims.

13

124.
On information and belief, Aequitas also committed its credit receivables as

14
15

collateral to multiple obligations, which had the effect of impairing and overstating the value of

16

the collateral supporting Aequitas investments.

17

125.
Valuations set by the Investment Committee, and included in Aequitas's audited

18
19

financial statements, PPMs, and promotional materials, were false and misleading.
2.

20

Inflated Valuations of the Portfolio Companies

21

126.

22

According to Aequitas's audited financial statements as of December 31, 2011,

23

the purported total value of Aequitas's nonmarketable common stock and private equity funds

24

was $15.7 million. By the next year, this value had purportedly more than doubled to

25

$31.8 million. As of December 31, 2013, Aequitas reported an asset value of $93 million, which

26

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the Investment Committee increased significantly again to $142.5 million as of December 31,

2014.

127.

Despite claiming rapid growth in the value of Aequitas's equity holdings, many, if

not all, of Aequitas's investments, including CPYT, MotoLease, and ETC, were losing money.

For example, Aequitas reported that CPYT lost $4.8 million in 2011, $14.4 million in 2012, and

$6.2 million in the first 11 months of 2013.

128.

On information and belief, Aequitas also calculated the value of its equity

10

interests in one or more portfolio companies by improperly applying excessive multiples to the

11

company's earnings, thereby engineering valuations that were, in at least one instance, twice the

12

company's actual value. On information and belief, these inflated valuations were made during

13

the years when EisnerAmper and Deloitte were hired to conduct independent audits.

14

3.

Manufacturing Overvalued Assets Through Intercompany Transactions

15

129.

16

Aequitas exercised its control over the various Aequitas entities to orchestrate

17

intercompany transactions, including loans that had the effect of overstating assets. These

18

transactions enabled Aequitas to pay excessive compensation to executives and fund their lavish

19

lifestyles.

20

130.

21

For example, at the beginning of 2012, ACF reported $77.7 million in assets from

22

notes receivable issued by Aequitas's affiliate companies. By the end of 2014, that amount had

23

ballooned to $184.7 million. Aequitas caused ACF to make at least 21 intercompany loans,

24

ranging from $250,000 to $16 million, including a multimillion-dollar loan to "Members of

25

Management."

26

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131.
Aequitas's largest intercompany loan was madewith no maturity dateby ACF

2
3

to Aequitas Holdings (the "Holdings Note"). Aequitas Holdings distributed the proceeds

throughout the Aequitas organization, including payments to Aequitas Management, ACM,

ACOF, and other subsidiaries. On information and belief, Aequitas also used the loan proceeds

to pay for lavish perks, including private jets, office renovations, and extravagant parties.

132.
From 2011 through 2014, Aequitas Holdings siphoned increasingly more and

8
9
10

more investor money out of ACF, generating a balance due on the Holdings Note of
$120.8 million by the end of 2014.

11

133.
Aequitas Holdings' inability to cover its debt to ACF was increasingly obvious

12
13

and more severe. On information and belief, by treating and recording the Holdings Note at its

14

face value, Aequitas significantly overstated ACF's assets.

15

134.
On information and belief, Aequitas Holdings lost over $22 million in 2014 and

16
17

$46 million in 2015.

18

135.
On information and belief, along with these massive losses, the collateral backing

19
20

the Holdings Note was not keeping pace with the ballooning loan balance. At the end of

21

February 2015, Aequitas Holdings had $67 million in assets backing $127.6 million due on the

22

Holdings Note. The collateral fell to $65.3 million by June 2015, compared to a loan balance

23

that had increased to $147.4 million. By the end of October 2015, Aequitas Holdings held only

24

$69.8 million in collateral to secure a balance due of $169 million.

25
26

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136.

On information and belief, Aequitas further demonstrated its awareness of the

perilous state of ACF and Aequitas Holdings during July 2015 when it magically reduced the

value of the Holdings Note from $147 million to $65 million to comply with requirements

imposed by a lender and the Investment Company Act. On information and belief, Sidley

provided legal advice to ACF in connection with this adjustment.


4.

Intercompany Fee Agreements

137.
Aequitas's entities were linked through complicated layers of intercompany fee

9
10

and service agreements that made it difficult to track the distribution of proceeds; to understand

11

how Aequitas was charging investors and compensating its various entities, individuals, and

12

partners; and to determine actual value. Examples of such arrangements are the following:
(a)

13
14

ACF paid millions of dollars each year in "management fees" and

"program management fees" to ACM, AIM, and other Aequitas entities.


(b)

15

ACF entered agreements with CPYT and EDPlus to manage ACF's

16

student loan receivables and healthcare receivables businesses. In 2014 alone, ACF paid CPYT

17

and EDPlus collectively over $11.5 million in management fees. The payment of these fees

18

increased the perceived value of ACOF (owner of CPYT and EDPlus), which in turn increased

19

the perceived value of ACF (an owner of ACOF).


(c)

20

ACF executed a "servicing arrangement" with CP Technologies, a

21

subsidiary of CPYT, and another Aequitas entity in the healthcare receivables business.

22

CP Technologies was eventually dissolved, and the "servicing arrangement" was extended to

23

CPYT. ACF paid "one-time" fees to CPYT calculated as a percentage of the face amount of

24

receivables bought from hospitals. In both 2013 and 2014, these "one-time" fees exceeded

25

$4 million. In addition to the "servicing arrangement" and "one-time" fees, ACF paid CPYT

26

"servicing fees" each year. In both 2013 and 2014, these "servicing fees" exceeded $2 million.

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(d)

In 2011 and 2012, Aequitas "deferred" over $2 million each year in

"origination fees" paid from ACF to CP Technologies, the parent company of CPYT that was

later dissolved. CP Technologies also charged ACF "servicing fees" in 2011 and 2012. These

servicing fees exceeded $3 million each year.

(e)

In 2011 and 2012, ACF paid fees to Capio Partners, LLC, ("Capio").

Capio serviced healthcare receivables. In 2011, ACF paid Capio $7.2 million in "servicing" fees

and $619,000 in interest. In 2012, ACF paid Capio $4.9 million in "servicing" fees and an

additional $1.3 million in "interest."

9
10

138.
I.

Aequitas's Deception Through Misrepresentations and Omissions

11

By no later than 2013 and unbeknownst to plaintiffs, Aequitas was misleading

12

investors through representations made in PPMs, promotional materials, and oral statements, as

13

well as through its omission of critical facts. In addition to the deception alleged above,

14

Aequitas's material misrepresentations and omissions included the following:

15

1.

The Use of Investor Proceeds

16

139.

17
18

Aequitas made material misrepresentations and omissions relating to how investor


money would be used in the following respects:

19

(a)

Aequitas represented that hundreds of millions of dollars received from

20

investors would be invested in credit receivable markets, including healthcare, student loan, and

21

consumer credit.

22

(b)

According to ACF's PPM dated November 30, 2012, ACF would use

23

"proceeds from the issuance of Secured Notes to engage in various specialty financing

24

transactions, and to provide senior and junior debt and equity funding for the benefit of its

25

affiliates and its related investment programs."

26

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(c)

ACF promotional materials, dated August 2014, stated that "[p]roceeds

from the sale of [ACF] Notes are used by ACF to provide capital directly or indirectly to

borrowers or niche third party credit providers."

(d)

ACOF's PPMs represented that investments in the ACOF Interests would

be used primarily for "making privately-negotiated investments in equity, equity-related and

other securities of growth oriented companies generally in the financial services arena."

(e)

AIOF-II's PPM dated October 2, 2014, stated that AIOF-II had been

formed to "purchase or finance the purchase of receivables, loans and leases from various credit

strategy programs, including but not limited to, hospitals, educational institutions and other

10

businesses."

11

(f)

APCF's PPM dated July 31, 2015, marketed a strategy of investing in

12

Aequitas-affiliated funds (including ACOF and ACL) as part of its strategy to "acquire, purchase

13

or finance * * * interests in select funds pursuing private equity strategies in healthcare,

14

education, financial technology, consumer finance and business finance markets"; "corporate

15

lending" within Aequitas; and "credit strategy receivables" that included "[e]ducation

16

receivables."

17

(g)

On information and belief, contrary to these representations, Aequitas

18

diverted millions of dollars of investor money to pay earlier investors, cover expenses, enrich

19

Aequitas executives, and fund Aequitas's extravagances, including lavish parties and a private

20

jet.

21
22

(h)

investor money went toward purchasing receivables or other investment assets.

23
24

(i)

On information and belief, less than 8 percent of new investor money went

toward purchasing receivables or other investment assets during 2015.

25
26

On information and belief, during 2014, less than 25 percent of new

(j)

Aequitas executives further represented to some ACF investors that their

money would be invested in healthcare receivables only. Aequitas represented to investors, at

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least as early as 2012, that their investment in ACF would be used solely to buy healthcare

receivables. Aequitas instead used proceeds invested through the ACF Notes to invest across a

variety of credit markets other than healthcare, in addition to paying other investors and Aequitas

itself.

2.

The Diversification of Investments

140.

7
8

Aequitas made material misrepresentations and omissions relating to the


concentration of its investments in the following respects:

(a)

In promotional materials and other representations, Aequitas touted its

10

"diversified portfolio of private credit instruments," which included its investments in healthcare

11

receivables, student loan receivables, and consumer credit. Aequitas's investments through its

12

affiliates in the healthcare credit market was a core part of the investment strategy that Aequitas

13

sold to investors.

14

(b)

By the end of 2012, Aequitas was purportedly holding $124.8 million in

15

student loan receivables, compared with only $27.9 million in healthcare receivables. By the end

16

of 2013, Aequitas was purportedly holding $153.5 million in student loan receivables, compared

17

with only $12.4 million in healthcare receivables.

18
19

(c)

Aequitas failed to fully and adequately disclose this overconcentration in

student loan receivables.

20

(d)

Aequitas's promotional materials further misrepresented that its

21

investment in student loan receivables was diversified among educational institutions. Aequitas

22

touted that its investments in student loan receivables were "risk diversified," and its PPMs and

23

promotional materials typically referred only to "educational institutions" and "schools"

24

generally, without identifying Corinthian.

25
26

(e)

In addition, certain promotional materials depicted these educational

institutions on a map of the United States, creating the impression that Aequitas purchased

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student loan receivables from educational institutions located in no fewer than 16 states across

the country. These promotional materials made no mention of Corinthian, nor did they disclose

that all, or nearly all, the schools were owned by Corinthian.

4
5

(f)

For years, Aequitas failed to disclose that all, or nearly all, its student loan

receivables were acquired from Corinthian.

(g)

Aequitas's 2013 and 2014 financial statements, audited by Deloitte,

specifically noted a "concentration risk" based on the fact that a majority of its healthcare

receivables were acquired from a small number of healthcare facilities supplying such

receivables. Aequitas's far greater concentration in student loan receivables from Corinthian

10

which was under investigation and in defaultwas not disclosed in the financial statements or

11

Aequitas's promotional materials.

12

(h)

Aequitas's concentration in student loan receivables began in 2011, and

13

continued through 2012, while EisnerAmper was Aequitas's auditor. EisnerAmper, like Deloitte

14

in 2013 and 2014, did not require Aequitas to disclose a concentration risk based on Aequitas's

15

student loan receivables holdings.

16

(i)

As of June 30, 2014, Aequitas represented that 31 percent of ACF's

17

balance sheet was allocated to "corporate debt" and another 24 percent to "corporate equity." On

18

information and belief, as much as 84 percent of ACF's assets consisted of student loan

19

receivables from Corinthian and equity and debt tied to companies affiliated with Aequitas.

20

(j)

In October 2014, Aequitas represented to investors that ACF and its

21

subsidiaries' ownership of Corinthian student loan receivables represented only 19 percent of

22

ACF's consolidated assets. On information and belief, Aequitas failed to disclose that Aequitas

23

Holdings, which was indebted to ACF for over $120 million, was also heavily invested in

24

Corinthian student loan receivables.

25
26

(k)

On information and belief, Aequitas also failed to disclose that the value

of its private equity interests, including ACOF, was also heavily tied to student loan receivables.

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3.

Asset and Collateral Value

141.

3
4

Beginning at least by mid-2013, Aequitas made material misrepresentations and


omissions relating to the value of its assets and underlying collateral in the following respects:

(a)

In its PPMs, promotional materials, and audited financial statements,

Aequitas provided "fair value" valuations of its credit receivables that, on information and belief,

were overstated and false. For example, Aequitas's valuations of its student loan receivables

from 2011 forward did not account for the negative developments surrounding Corinthian,

including the investigations, regulatory changes, Corinthian's default, or even Corinthian's

10

bankruptcy. These student loan receivables valuations also affected the value of EDPlus, one of

11

ACOF's equity holdings, and were reflected in ACOF's PPMs.

12

(b)

On information and belief, Aequitas's valuations were overstated and

13

constituted material misrepresentations because they failed to account for the overconcentration

14

in Corinthian's student loan receivables.

15

(c)

On information and belief, Aequitas's valuations were overstated and

16

constituted material misrepresentations because they failed to account for its commitment of

17

collateral to multiple conflicting and overlapping obligations.

18

(d)

On information and belief, Aequitas's valuations were overstated and

19

constituted material misrepresentations because they failed to account for the severe shortfall of

20

collateral to support its obligations to lenders, investors, and others.

21
22

(e)

On information and belief, Aequitas made material misrepresentations

regarding the value of its affiliate loans, including the following:

23

(i)

24

Aequitas Holdings had a value of over $78 million. On information and

25

belief, this balance exceeded Aequitas Holdings' assets by $20 million.

In early 2014, Aequitas represented to investors that ACF's loan to

26

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(ii)

Aequitas Holdings had a value of over $120 million. On information and

belief, this balance exceeded Aequitas Holdings' assets by $60 million.

(iii)

to affiliate companies were valued at $180 million. On information and

belief, this balance exceeded Aequitas Holdings' assets by $100 million.

4.

In early 2015, Aequitas represented to investors that ACF's loan to

In early 2016, Aequitas represented to investors that ACF's loans

Material Risks Relating to Aequitas Investments

142.

Beginning at least by 2013, Aequitas made material misrepresentations and

10

omissions relating to the risks associated with Aequitas investment products in the following

11

respects:

12

(a)

Aequitas assured investors that its "[p]rivate credit investments can offer

13

considerably higher yields [than other fixed income investments] without a commensurate

14

increase in risk."

15

(b)

Without identifying Corinthian, Aequitas represented to investors that an

16

investment in Corinthian student loan receivables was "within the expected risk profile" because

17

"the risk of default [was] mitigated by balancing the quality of the assets with institutional credit

18

support, through a guaranty to repurchase any severely delinquent loans."

19

(c)

Aequitas represented to investors that it "approaches each new program

20

offering by evaluating the historical level of risk in the asset class, the financial strength of the

21

originator and servicer as well as the quality of the systems and procedures. Aequitas evaluates

22

the level of risk of each of the factors and structures its reliance on the collateral and the

23

institutional guaranty as appropriate."

24

(d)

Aequitas represented that its "[f]inancings are privately negotiated and are

25

secured by significant equity and/or underlying assets pledged as collateral underneath them.

26

The pool of assets is often comprised of self-liquidating assets."

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1
2

(e)

Aequitas represented that it had structured its student loan receivable

investments in a manner that provided "substantial over-collateralization."

(f)

On information and belief, Aequitas failed to fully and adequately disclose

that it had committed the same collateral to multiple obligations and that it lacked sufficient

collateral to cover those obligations.

6
7

(g)

Aequitas failed to disclose the extent to which it had concentrated investor

money in Corinthian's student loans.

(h)

Aequitas failed to properly disclose Corinthian's severe and rapid

deterioration, Corinthian's inability to satisfy its recourse obligations, and the resulting impact on

10

the value of Aequitas's assets, collateral, and investment performance. Material facts that should

11

have been properly and timely disclosed include but are not limited to the following:

12

(i)

13

of student loan receivables;

14

(ii)

15

Corinthian's lending practices and operations;

16

(iii)

17

to cut off the flow of federal aid to Corinthian studentsaid on which

18

Corinthian's existence depended;

19

(iv)

20

regarding student loan receivables;

21

(v)

22

2014; and

23

(vi)

24

(j)

Corinthian's identity as the sole source, or nearly the sole source,

The regulatory, congressional, and legal developments relating to

The announcement of proposed federal regulations that threatened

American Student Financial Group, Inc.'s lawsuit against Aequitas

Corinthian's default on its obligations to Aequitas on June 10,

Corinthian's bankruptcy on May 4, 2015.

Aequitas failed to disclose material information regarding the Portfolio

25

Companies that would affect the value of ACF and ACOF. Specifically, Aequitas failed to

26

disclose that:

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(i)

sanctioned by the SEC for providing investors with false and misleading

disclosures about investment performance and for violating the Investment

Advisers Act;

(ii)

risk management systems; and

(iii)

value of Corinthian student loan receivables.

(k)

Strategic Capital Group, LLC, a subsidiary of SCA, was

ETC was sanctioned by regulators for inadequate supervisory and

On information and belief, EDPlus's value depended largely on the

Aequitas failed to disclose that its intercompany transactions and

10

overlapping ownership rendered the performance and viability of each Aequitas issuer (and

11

consequently each investment) dependent on the financial health of ACF and Aequitas Holdings.

12

(l)

Aequitas failed to disclose that by 2014, the Holdings Note was severely

13

under collateralized and that Aequitas Holdings' losses and shrinking assets presented serious

14

risks to Aequitas's survival and ability to fulfill its obligations to investors.

15

(m)

During 2014 and 2015, Aequitas failed to disclose that the performance of

16

the investments it sold was threatened by over $220 million in redemptions that were coming due

17

in 2015, including the fact that Aequitas did not have enough cash to satisfy those redemptions.

18

(n)

Aequitas and its auditors (including Deloitte) was obligated to evaluate

19

and consider the need for a going concern qualification that would reveal Aequitas's financial

20

distress. On information and belief, based on the information available to it at least as early as

21

2015, the going concern issue should have been raised and disclosed. No such disclosure was

22

made to investors.

23

(o)

24

investigation by the SEC.

25
26

Aequitas failed to adequately and timely disclose that it was under

(p)

Aequitas failed to disclose that it was required by law to register its

securities.

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5.

Priority of Investments

143.

3
4

Aequitas misled investors about the priority of their investments by making


misrepresentations and omissions in the following respects:

(a)

Aequitas misled investors into believing that their notes had a priority

claim on Aequitas's assets. Aequitas described promissory notes as "secured," including using

the word prominently in the title of promissory notes. But buried deep within promissory notes,

Aequitas stated that this security interest was subordinate to any security interest granted by

Aequitas to secure "Senior Indebtedness." "Senior Indebtedness" could include obligations

10

incurred by Aequitas after the promissory notes were issued to investors. And the notes included

11

no limit on the obligations that Aequitas could incur after issuing them.

12

(b)

On information and belief, Aequitas pledged the same assets as collateral

13

for multiple loans and lines of credit originated by both Aequitas-controlled entities and third-

14

party lenders.

15

144.

16

As reflected by the allegations above, Aequitas acted with a guilty state of mind

17

while marketing and selling its securities. For example, Aequitas continued to actively market

18

and sell its securities despite knowing, or acting in deliberate disregard of, the following:

19

The "diversified portfolio" that Aequitas marketed and sold to investors


was overly concentrated in student loan receivables from Corinthian
Colleges.

Plagued by investigations that threatened its viability, Corinthian's


share price had plunged nearly 90 percent from April 2010 to
April 2013, and it had lost over $120 million between June 30, 2011,
and June 30, 2013.

Corinthian defaulted on its obligations to Aequitas in 2014 and filed for


bankruptcy in 2015.

Aequitas's assets were grossly overvalued by its Investment Committee


without adjustments to account for Corinthian's freefall or Aequitas
Holdings' inability to repay the Holdings Note.

20
21
22
23
24
25
26

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Meanwhile, Aequitas was not generating enough revenue to cover its


operating expenses and liabilities, which included redemption requests
for the $220 million in notes that were becoming due in 2015.

Buckling under the weight of its failed investment strategy, Aequitas


used new investor money to pay other investors and to cover operating
expenses, rather than investing it in the credit markets Aequitas
advertised.

2
3
4
5
6

145.

Aequitas's material misrepresentations and omissions operated to toll any statute

of limitations for violations of ORS 59.115(1)(a) and (b) because (a) defendants aided Aequitas

in actively concealing violations of Oregon securities law; and (b) plaintiffs exercised due

10

diligence in preserving their legal claims.

11

J.

12

Aequitas's Attorneys, Accountants, and Valuation Specialist Were Instrumental in


Its Sale of Securities

13

146.

14

The participation and assistance of Aequitas's outside auditors, attorneys, and

15

valuation specialist were critical to Aequitas's solicitation and sale of securities to plaintiffs,

16

which necessarily included, among other things, the formation of the Aequitas entities and

17

affiliates; preparation of PPMs, promotional materials, and quarterly reports; preparation of

18

agreements with investors, affiliates, partners, and other Aequitas entities; the design and

19

performance of audits; the preparation of audited financials, valuations, and other financial

20

information provided to investors; legal and accounting advice relating to the operation of the

21

various Aequitas entities; legal advice relating to compliance with securities laws, including

22

registration requirements; and general legal and accounting advice relating to risks and

23

obligations surrounding the Aequitas operation.

24

147.

25
26

Through their assistance with these and others matters, Deloitte, Tonkon,
EisnerAmper, Sidley, and Duff & Phelps participated in and materially aided Aequitas's sales of

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securities to plaintiffs. Aequitas's ability to hold out these professionals as its auditors, legal

counsel, advisors, and business partners in the PPMs and promotional materials provided to

investors, and in communications with plaintiffs and other investors, was sufficient alone to give

Aequitas the perception of credibility and quality that induced investors to entrust their

substantial investments to Aequitas. Examples of each professional firm's involvement are

alleged below.

1.

Deloitte

148.

As Aequitas advertised in its PPMs, promotional materials, and audited financial

10

statements, Deloitte served as the "auditor/tax advisor" for the Aequitas companies, including

11

ACF, ACOF, AIOF, AIOF-II, and APCF, from the fall of 2013 to at least mid-2015.

12

149.

13

ACF's PPMs provided financial information with the headings "Audited,"

14

"INCOME STATEMENT," and "BALANCE SHEET" that included financial data derived from

15

Deloitte's 2013 ACF audit.

16

150.

17

By assuming the professional responsibilities of Aequitas's independent auditor,

18

Deloitte undertook an obligation to ensure that its audits and audit reports complied with

19

applicable industry standards, including requirements governing the design and performance of

20

its audits; the audit of valuations; the inclusion of notes and adequate disclosures in Aequitas's

21

financial statements; and the obligation to evaluate and consider the need for a going concern

22

qualification. Deloitte was also obligated to ensure that it was and remained independent.

23

151.

24
25

Deloitte explained in an appendix to an engagement letter with Aequitas dated


October 10, 2013, that generally accepted auditing standards required Deloitte to conduct an

26

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audit to obtain reasonable assurance about whether Aequitas's financial statements were free

from material misstatement caused by fraud or error.

152.

In the October 10, 2013, engagement letter, under the heading, "Inclusion of D&T

Reports or References to D&T in Other Documents or Electronic Sites," Deloitte explained that

if Aequitas intended to refer to Deloitte in a document, including a PPM, containing audited

financial statements as well as other information, "thereby associating D&T with such

document," Aequitas agreed to "provide D&T with a draft of the document to read and obtain

our approval for the inclusion or incorporation by reference of any of our reports, or the

10

reference to D&T, in such document before the document is printed and distributed." Nearly

11

identical language appeared in Deloitte's engagement letter with Aequitas dated September 8,

12

2014.

13

153.

14

Deloitte had copies of Aequitas's PPMs in its audit work paper files, including

15

PPMs for ACF, ACOF, and AIOF-II. PPMs in Deloitte's files identified Deloitte as Aequitas's

16

auditor. The ACF PPM in Deloitte's files even identified financial data in the PPM as "Audited."

17

Aequitas used these and similar PPMs to solicit investors and sell its securities. Investors knew

18

that Deloitte was Aequitas's auditor because PPMs identified Deloitte as the auditor.

19

154.

20

After commencing its audit of Aequitas in the fall of 2013, Deloitte issued an

21

"Independent Auditors' Report" dated May 23, 2014, that included consolidated financial

22

statements for the following entities: ACF; AIOF; AIOF-II; Aequitas CarePayment Fund, LLC;

23

Aequitas Income Protection Fund, LLC; ACOF; Aequitas North American Finance, LLC;

24

CarePayment, LLC, and its subsidiary CP Funding I, LLC; CA Medical, LLC; Campus Student

25

Funding, LLC; CP Leverage I, LLC; CSF Leverage I, LLC; Destination Capital Equipment

26

Finance, LLC; EC Hanger LLC; Motolease Financial, LLC; and Hill Land Company, LLC.

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155.
Aequitas's audited financial statements, included as part of Deloitte's report dated

2
3

May 23, 2014, address the financial condition of the Aequitas entities; Aequitas's investment in

credit receivables (including student loan receivables); related-party relationships and

transactions; and the valuation of ACF's assets, including the credit receivables, ACF's loans, and

its equity interests.

156.
Aequitas's financial statements for fiscal year 2013, audited by Deloitte, also

8
9

include a risks and uncertainties section. Under the subheading "Concentration risk," Aequitas

10

disclosed that approximately 60 percent of Aequitas's healthcare receivables originated from

11

only 5 of the 27 healthcare facilities that sold those receivables to Aequitas. No note is made

12

regarding Aequitas's concentration in student loan receivables.

13

157.
Deloitte's audit report included Deloitte's independent opinion that ACF's

14
15

consolidated financial statements "present fairly, in all material respects, the consolidated

16

financial position of [ACF] as of December 31, 2013, and the results of its operations and its

17

cash flows for the year then ended in accordance with accounting principles generally accepted

18

in the United States of America." Deloitte's audit report stated that "the audit evidence we have

19

obtained is sufficient and appropriate to provide a basis for our audit opinion."

20

158.

21

Deloitte's audit report dated May 23, 2014, also noted the following:

22
23
24
25

"[T]he consolidated financial statements include investments valued at


$257,285,732 (55.6% of total assets) as of December 31, 2013, whose fair values
have been estimated by management in the absence of readily determinable fair
values. Management's estimates are based on comparable market data, or
information provided by the fund managers or the general partners. Our opinion
is not modified with respect to this matter."

26

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159.

On May 29, 2015, Deloitte issued an "Independent Auditors' Report" to ACF that

included consolidated financial statements for fiscal years 2013 and 2014. The audited financial

statements included a "prior period adjustment" because Aequitas had "incorrectly calculated the

fair value of its student loan receivables." The audited financial statements also noted that

$220,614,727 in senior and subordinated debt would mature in 2015.

160.
Deloitte's audit report dated May 29, 2015, provided its opinion that ACF's

8
9

consolidated financial statements "present fairly, in all material respects, the financial position of

10

[ACF] as of December 31, 2014 and 2013, and the results of its operations and its cash flows for

11

the years then ended in accordance with accounting principles generally accepted in the United

12

States of America."

13

161.

14

Deloitte's audit report noted that Aequitas's management set the value of

15

41.9 percent and 55.6 percent of ACF's assets, and Deloitte took Aequitas's word for it.

16

162.
Under SEC rules, Aequitas was required to provide Deloitte's annual audited

17
18

financial statements of the various Aequitas funds to investors.

19

163.
In addition to its audits, Deloitte assisted Aequitas with the preparation of the

20
21

financial information that was provided to investors through PPMs, promotional materials, and

22

quarterly reports. Deloitte also participated in and assisted with the valuations of ACOF's

23

portfolio companies and the performance metrics information for those companies. This

24

information was included in PPMs and promotional materials that Aequitas used to solicit

25

potential investors and sell securities. Aequitas also touted to investors that Deloitte "reviewed"

26

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the valuations. In an October 10, 2013, letter to Aequitas, Deloitte estimated that its audit of

"beginning equity balances" would cost $85,000.

164.

On information and belief, in September 2015, Deloitte hired Chelsea Jesenik as

an audit associate. Also on information and belief, she had interned with Aequitas during 2013.

Ms. Jesenik brought any knowledge she had developed of Aequitas's operations with her to

Deloitte.

165.

Deloitte had an obligation to review Aequitas's ability to continue as a going

10

concern. Deloitte was obligated to include a going concern qualification in its opinion of

11

Aequitas's financial statements if Deloitte had substantial doubt regarding Aequitas's ability to

12

continue for one year.

13

166.

14
15

Deloitte estimated that its audit fee for 2013 would be $900,000, not including
"[e]ngagement-related expenses."

16

167.

17
18

Deloitte estimated that its audit fee for 2014 would be $1,267,000, not including
"[e]ngagement-related expenses."

19

2.

Tonkon

20

168.

21

As Aequitas advertised in its PPMs, Tonkon served as legal counsel for ACF and

22

AIOF-II at all relevant times. In addition, it served as counsel to ACM, including service as

23

defense counsel in the lawsuit filed against Aequitas by American Student Financial Group, Inc.

24

On information and belief, Tonkon provided legal services to other Aequitas entities.

25
26

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169.

Tonkon had "extensive experience representing companies, underwriters,

borrowers, lenders, investors, private investment firms, private equity firms and venture

capitalists in public offerings, commercial loans and private placements of debt and equity

securities."

170.
On information and belief, Tonkon participated in and assisted with company

7
8

formation and governance; legal advice relating to the operation of CarePayment Founders Fund,

ACF, AIOF-II, ACM, and Aequitas Management, including legal compliance issues; and the

10

drafting and modification of PPMs, subscription agreements, promissory notes, and other

11

documents related to the sale of Aequitas securities, including the ACF Notes and the AIOF-II

12

Notes.

13

171.
On information and belief, in the course of advising Aequitas, Tonkon reviewed,

14
15

or reasonably should have reviewed, Aequitas's audited financial statements.

16

172.
By undertaking the professional responsibilities of legal counsel to ACF, ACM,

17
18

AIOF-II, and Aequitas Management, Tonkon had an obligation to familiarize itself with

19

Aequitas's securities offerings and sales methods along with information that Aequitas reported

20

in PPMs, offering materials, and promotional materials.

21

173.
In or about December 2013, Tonkon hired Jessica Morgan, Aequitas's assistant

22
23

general counsel. While working at Aequitas, Morgan advised the company about investment

24

advisor and investment company compliance, governance, and regulatory matters for new funds

25

and products. Morgan brought the extensive knowledge she had developed of Aequitas's

26

operations with her to Tonkon.

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174.
In or about December 2015, Tonkon hired another assistant general counsel at

2
3

Aequitas, David Myers. Myers also brought the knowledge he had developed of Aequitas's

operations with him to Tonkon.


3.

Sidley

175.
As Aequitas advertised in its PPMs, Sidley served as the corporate counsel for

7
8

ACM and AIM from at least 2012 to 2016. Sidley acted as the corporate counsel for ACOF

from 2014 to 2016. Sidley was also legal counsel for Aequitas Capital Opportunities GP, LLC

10

("ACOGP"), the general partner of ACOF.

11

176.
By undertaking the professional responsibilities of legal counsel to AIM, ACM,

12
13

ACOF, and ACOGP, Sidley had an obligation to familiarize itself with Aequitas's securities

14

offerings and sales methods along with information that Aequitas reported in PPMs, offering

15

materials, and promotional materials. On information and belief, Sidley should have

16

familiarized itself with ACF and the ACF assets that Aequitas transferred to ACOF.

17

177.
On information and belief, Sidley prepared legal opinions and analysis regarding

18
19

the registration requirements of Aequitas entities and securities and compliance with the

20

Investment Company Act. Specifically, on information and belief, Sidley provided legal advice

21

to Aequitas in connection with isolating certain assets to help facilitate obtaining a line of credit

22

from Wells Fargo, and advised ACF in connection with the manipulation of the valuation of the

23

Holdings Note to satisfy regulatory requirements. These legal opinions and analysis allowed

24

Aequitas to obtain and maintain financing and lines of credit from financial institutions, enabling

25

Aequitas to continue to sell securities and conceal the matters alleged above.

26

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4.

EisnerAmper

178.

As Aequitas advertised in ACF's PPMs, EisnerAmper acted as the "auditor/tax

advisor" for ACF from at least March 2012 to the fall of 2013. EisnerAmper also audited AIOF

and Aequitas Income Protection Fund. Investors knew that EisnerAmper was Aequitas's auditor

because PPMs identified EisnerAmper as the auditor.

179.

8
9
10

ACF's PPMs provided potential investors with financial information under the
headings "Audited," "INCOME STATEMENT," and "BALANCE SHEET" that included
financial data derived from EisnerAmper's combined 2011 and 2012 ACF audit.

11

180.

12

By assuming the professional responsibilities of ACF's independent auditor,

13

EisnerAmper undertook an obligation to ensure that its audits and audit reports complied with

14

applicable industry standards, including requirements governing the design and performance of

15

its audits; the audit of Aequitas's financial statements and valuations; and the inclusion of notes

16

and disclosures in audit reports. EisnerAmper was also obligated to ensure that it was

17

independent.

18

181.

19

EisnerAmper issued its Independent Auditors' Report for ACF dated April 30,

20

2013, that included consolidated audited financial statements for 2011 and 2012. In the report,

21

EisnerAmper provided its opinion that ACF's consolidated financial statements "present fairly, in

22

all material respects, the consolidated financial position of [ACF] as of December 31, 2012 and

23

2011 and the consolidated results of its operations, changes in member's equity and cash flows

24

for each of the years then ended in accordance with accounting principles generally accepted in

25

the United States of America." EisnerAmper further stated that "the audit evidence we have

26

obtained is sufficient and appropriate to provide a basis for our audit opinion." In its

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Independent Auditors' Report, EisnerAmper did not address the fact that substantially all of

ACF's assets were reported at "fair value." Aequitas determined the "fair value" of student loan

and healthcare receivables and other assets, and EisnerAmper took Aequitas's word for it.

182.

EisnerAmper's audit addressed the financial condition of the Aequitas entities;

Aequitas's investment in credit receivables (including student loan receivables); related party

relationships and transactions; and the valuation of ACF's assets, including credit receivables,

ACF's loans, and ACF's equity interests.

183.

10
11

Under SEC rules, Aequitas was required to provide EisnerAmper's annual audited
financial statements of the various Aequitas funds to investors.

12

5.

Duff & Phelps

13

184.

14

ACOF's February 2014 PPM advertised that Duff & Phelps had been engaged to

15

"provide an estimated range of fair values" for several of ACOF's portfolio companies, including

16

CPYT, EDPlus, and ETC Global Holdings, Inc. Duff & Phelps's valuation for each of these

17

companies was included in ACOF's PPM with language that clearly identified it as "Duff &

18

Phelps Estimated Fair Value Range."

19

185.

20

Duff & Phelps's engagement and the valuation estimates it provided added

21

credibility to Aequitas's investment program and materially aided Aequitas's solicitation and sale

22

of the ACOF Interests.

23

186.

24

By assuming the professional responsibility of an independent valuation

25

specialist, Duff & Phelps was obligated to ensure that it complied with applicable industry

26

standards and that it obtained sufficient information to reliably support its valuation estimates.

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3 4 0 0 U. S. B AN CO RP T OW E R
1 1 1 S.W . FI FT H AVEN UE
P ORT L A N D , O RE GO N 9 7 2 0 4

With respect to EDPlus, this obligation included understanding EDPlus's total assets under

management calculations, which, according to the ACOF PPM, was based primarily on the "face

value of outstanding receivables." On information and belief, these included Corinthian student

loan receivables.

K.

TD Ameritrade Was Instrumental in Aequitas's Sale of Securities

187.

No later than June 2013, TD Ameritrade encouraged investors to purchase the

ACF Notes, provided assurances to investors about Aequitas, and recommended Aequitas

investments to investors. Through these and other means, TD Ameritrade participated in and

10

materially aided Aequitas's sales of securities to plaintiffs.

11

188.

12

TD Ameritrade representatives met with investors in person to promote Aequitas

13

securities. TD Ameritrade provided promotional materials to investors, including PPMs and

14

financial statements.

15

189.

16

TD Ameritrade advised investors that it had conducted "due diligence" on

17

Aequitas before agreeing to do business with Aequitas and before encouraging investors to

18

invest with Aequitas. TD Ameritrade assured potential Aequitas investors that because TD

19

Ameritrade had done "due diligence," the potential investors should trust TD Ameritrade's

20

judgment and purchase Aequitas's investments.

21

190.

22

TD Ameritrade representatives reassured investors about the low-risk nature of

23

Aequitas securities by suggesting that the representative or his or her family member had

24

successfully invested with Aequitas.

25
26

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191.
In addition, TD Ameritrade referred investors to registered investment advisors to

2
3

facilitate purchases of Aequitas's promissory notes. In exchange for referring investors, TD

Ameritrade received a percentage of the fee that an investor paid to his or her registered

investment advisor.

192.
From at least June 2013 to November 2015, TD Ameritrade acted as custodian for

7
8

Aequitas securities. Upon information and belief, TD Ameritrade also received compensation

directly from Aequitas for acting as custodian for Aequitas securities.

10

193.
TD Ameritrade provided investors with quarterly statements detailing the value of

11
12

their investment, but rarely provided any updates or additional information regarding Aequitas,

13

the business model, or the security for the investments. In other words, TD Ameritrade

14

controlled the flow of information from Aequitas to investors.


V.

15
16

DAMAGES
194.

A summary of plaintiffs' investments with Aequitas, including the issuer, date of

17
18

investment, and interest rate, is attached as Exhibit 1 and incorporated by reference. Plaintiffs

19

reserve the right to amend and supplement this Complaint with additional plaintiffs who invested

20

with Aequitas.
VI.

21

FIRST CLAIM FOR RELIEF

22

(Violations of Oregon Securities LawORS 59)

23

(Count OneORS 59.115(1)(a) and ORS 59.055)

24

195.

25

Plaintiffs reallege the foregoing paragraphs and incorporate them by reference.

26

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196.

Aequitas sold unregistered securities in violation of ORS 59.055.

197.

Aequitas executives, including Robert Jesnick, were not licensed under the

Oregon Securities Laws and solicited and sold securities in violation of ORS 59.055 and

ORS 59.165.

198.

8
9

Aequitas is consequently liable under ORS 59.115(1)(a) for violating the Oregon
Securities Laws.

10

199.

11

Defendants Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD

12

Ameritrade are liable to plaintiffs pursuant to ORS 59.115(3) because they participated in or

13

materially aided in Aequitas's unlawful sale of unregistered securities.

14

200.

15

Under ORS 59.115(2)(a) and 59.115(3), upon tender of the securities, defendants

16

Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD Ameritrade are jointly and

17

severally liable for the consideration paid for the securities, plus interest from the date of

18

payment equal to the greater of 9 percent or the interest rate provided in the securities, less any

19

amount plaintiffs received on the securities.

20

201.

21

Pursuant to ORS 59.115(10), defendants Deloitte, EisnerAmper, Sidley, Tonkon,

22

Duff & Phelps, and TD Ameritrade should be required to pay plaintiffs' reasonable attorney fees.

23

(Count TwoORS 59.115(1)(b))

24

202.

25

Plaintiffs reallege the foregoing paragraphs and incorporate them by reference.

26

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203.

Aequitas unlawfully sold securities by (a) making untrue statements of material

facts and (b) omitting material facts that were necessary in order to make the statements made, in

light of the circumstances under which they were made, not misleading.

204.

6
7

Aequitas is consequently liable under ORS 59.115(1)(b) for violating Oregon


Securities Laws.

205.

Defendants Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD

10

Ameritrade are liable to plaintiffs pursuant to ORS 59.115(3) because they participated in or

11

materially aided in Aequitas's unlawful sale of securities.

12

206.

13

Under ORS 59.115(2)(a) and 59.115(3), upon tender of the securities, defendants

14

Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD Ameritrade are jointly and

15

severally liable for the consideration paid for the securities, plus interest from the date of

16

payment equal to the greater of 9 percent or the interest rate provided in the securities, less any

17

amount plaintiffs received on the securities.

18

207.

19

Pursuant to ORS 59.115(10), defendants Deloitte, EisnerAmper, Sidley, Tonkon,

20

Duff & Phelps, and TD Ameritrade should be required to pay plaintiffs' reasonable attorney fees.

21

(Count ThreeORS 59.115(1)(a) and ORS 59.135(1) and (3))

22

208.

23

Plaintiffs reallege the foregoing paragraphs and incorporate them by reference.

24
25
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209.

Aequitas sold securities, in violation of ORS 59.135(1) and (3) by (a) employing a

scheme to defraud investors and (b) engaging in a course of business which operated as a fraud

or deceit upon investors.

210.

6
7

Aequitas is liable to plaintiffs under ORS 59.115(1)(a) for violating the Oregon
Securities Law, specifically ORS 59.135(1) and (3).

211.

Defendants Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD

10

Ameritrade are liable to plaintiffs pursuant to ORS 59.115(3) because they participated in or

11

materially aided in Aequitas's fraudulent scheme and deceptive business operations.

12

212.

13

Under ORS 59.115(2)(a) and 59.115(3), upon tender of the securities, defendants

14

Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD Ameritrade are jointly and

15

severally liable for the consideration paid for the securities, plus interest from the date of

16

payment equal to the greater of 9 percent or the interest rate provided in the securities, less any

17

amount plaintiffs received on the securities.

18

213.

19

Pursuant to ORS 59.115(10), defendants Deloitte, EisnerAmper, Sidley, Tonkon,

20

Duff & Phelps, and TD Ameritrade should be required to pay plaintiffs' reasonable attorney fees.

21

(Count FourORS 59.115(1)(a) and ORS 59.135(2))

22

214.

23

Plaintiffs reallege the foregoing paragraphs and incorporate them by reference.

24
25
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P ORT L A N D , O RE GO N 9 7 2 0 4

215.

Aequitas unlawfully sold securities by (a) making untrue statements of material

facts and (b) omitting material facts that were necessary in order to make the statements made, in

light of the circumstances under which they were made, not misleading.

216.

6
7

Aequitas is consequently liable under ORS 59.135(2) for violating Oregon


Securities Laws.

217.

Defendants Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD

10

Ameritrade are liable to plaintiffs pursuant to ORS 59.115(3) because they participated in or

11

materially aided in Aequitas's unlawful sale of securities.

12

218.

13

Under ORS 59.115(2)(a) and 59.115(3), upon tender of the securities, defendants

14

Deloitte, EisnerAmper, Sidley, Tonkon, Duff & Phelps, and TD Ameritrade are jointly and

15

severally liable for the consideration paid for the securities, plus interest from the date of

16

payment equal to the greater of 9 percent or the interest rate provided in the securities, less any

17

amount plaintiffs received on the securities.

18

219.

19
20

Pursuant to ORS 59.115(10), defendants Deloitte, EisnerAmper, Sidley, Tonkon,


Duff & Phelps, and TD Ameritrade should be required to pay plaintiffs' reasonable attorney fees.

21

VII.

SECOND CLAIM FOR RELIEF

22

(Violation of Oregon's Elder Abuse StatuteORS 124)

23

220.

24

Plaintiffs reallege the foregoing paragraphs and incorporate them by reference.

25
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221.

Plaintiffs Paul Gulick, as trustee for the Gulick Family Trust, Lee Johnson, Paul

Sylvan, Walter Wurster, Walter Wurster, as trustee for the Walter W. Wurster Revocable Trust,

and Ronald Inouye, as trustee for the Walter W. Wurster Irrevocable Trust (collectively, the

"Elderly Plaintiffs)" were at all material times vulnerable persons as set forth in

ORS 124.100(1)(g) because each of the Elderly Plaintiffs was an elderly person as defined in

ORS 124.100(1)(b).

222.

The Elderly Plaintiffs were each entitled to the protections of ORS 124.

10

223.

11
12

As provided in ORS 124.100(4), Aequitas's conduct constituted financial abuse of


the Elderly Plaintiffs as set forth in ORS 124.110.

13

224.

14

In violation of ORS 124.100(5), defendants Deloitte, Eisner, Tonkon, and TD

15

Ameritrade permitted Aequitas to engage in financial abuse of the Elderly Plaintiffs by

16

knowingly acting or failing to act under circumstances in which a reasonable person should have

17

known of the financial abuse.

18

225.

19

Under ORS 124.100(2), defendants Deloitte, Eisner, Tonkon, and TD Ameritrade

20

are liable for an amount equal to three times all economic and noneconomic damages resulting

21

from the financial abuse or $500, whichever amount is greater.

22

226.

23
24

Pursuant to ORS 124.100(2)(c), defendants Deloitte, Eisner, Tonkon, and TD


Ameritrade are liable for reasonable attorney fees incurred by the Elderly Plaintiffs.

25
26

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P ORT L A N D , O RE GO N 9 7 2 0 4

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for judgment as follows:

1.

An award of damages in favor of plaintiffs, under ORS 59.115(2)(a),

against all defendants, in an amount to be proved at trial, plus applicable pre- and post-judgment

interest, in an amount no less than $44,400,000.00;

2.

An award of damages in favor of the Elderly Plaintiffs, under

ORS 124.100(2), against defendants Deloitte, Eisner, Tonkon, and TD Ameritrade for three

times the amount of their economic and noneconomic damages, in an amount to be proved at

trial, but no less than $72,800,000.00;

10

3.

Reasonable attorney fees under ORS 59.115(10) and 124.100(2)(c);

11

4.

Plaintiffs' costs and disbursements; and

12

5.

Any other further relief that the court deems just, equitable, and proper.

13

DATED this 11th day of August, 2016.

14

MILLER NASH GRAHAM & DUNN LLP

15
16

22

s/ Alexander M. Naito
Dennis P. Rawlinson, OSB No. 763028
dennis.rawlinson@millernash.com
Joshua M. Sasaki, OSB No. 964182
josh.sasaki@millernash.com
Justin C. Sawyer, OSB No. 014057
justin.sawyer@millernash.com
Alexander M. Naito, OSB No. 124046
alexander.naito@millernash.com
111 S.W. Fifth Avenue, Suite 3400
Portland, Oregon 97204
Phone: (503) 224-5858
Fax: (503) 224-0155

23

Attorneys for Plaintiffs

24

Trial Attorney: Dennis P. Rawlinson


OSB No. 763028

17
18
19
20
21

25
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PLAINTIFFS' SUMMARY OF INVESTMENTS


Plaintiff
Keith Barnes
Keith Barnes1
Keith Barnes2
Keith Barnes3
Sharon Barnes4
Paul Gulick5
Paul Gulick6
Paul Gulick, as trustee for the Gulick
Family Trust
Paul Gulick, as trustee for the Gulick
Family Trust
Jeff Johnson7
Lee Johnson8
Julie Schmitz9
Julie Schmitz10
Julie Schmitz11
Custom Stamping, Inc.12
Custom Stamping, Inc.13
Custom Stamping, Inc.14
Custom Stamping, Inc.15
Paul Sylvan
Walter Wurster16
Walter Wurster, as trustee for the Walter
W. Wurster Revocable Trust17
Ronald Inouye, as trustee for the Walter
W. Wurster Irrevocable Trust18
Zam Capital Group, LLC
Zam Capital Group, LLC
*Statutory interest rate

Investment Type
ACF
PCF
ACOF
ACOF
PCF
ACF
AIOF
ACF

Interest Rate
13 %
12 %
9 %*
9 %*
12 %
11 %
10 %
9%

Investment Date
6/25/2014
12/31/2015
5/1/2014
6/19/2014
12/31/2015
10/22/2014
9/30/2014
5/16/2014

ACF

9%

11/11/2014

ACF
ACF
PCF
PCF
PCF
PCF
PCF
PCF
PCF
ACF
PCF
PCF

10 %
11 %
12 %
12 %
12 %
12 %
12 %
12 %
12 %
11 %
12 %
12 %

4/23/2015
8/11/2015
7/31/2015
7/31/2015
7/31/2015
7/31/2015
7/31/2015
7/31/2015
7/31/2015
9/14/2015
7/31/2015
7/31/2015

PCF

12 %

7/31/2015

PCF
ACOF

12 %
9 %*

7/31/2015
3/25/2014

Original investment in ACF on 4/25/2014.


Original investment in ACF on 5/25/2011.
3
Original investment in ACF on 5/25/2011.
4
Original investment in ACF on 8/1/2013.
5
Original investment in ACF on 10/22/2008.
6
Original investment in AIOF on 8/28/2009.
7
Original investment in ACF on 5/24/2010.
8
Original investments in ACF in 2010, 2011, 2012, 2013, and 2014.
9
Original investment in ACF on 2/18/2011.
10
Original investment in ACF on 12/21/2012.
11
Original investment in ACF on 2/15/2013.
12
Original investment in ACF on 12/16/2014.
13
Original investment in ACF on 5/16/2014.
14
Original investment in ACF on 6/1/2013.
15
Original investment in ACF on 9/1/2012.
16
Original investment in ACF on 3/9/2009.
17
Original investments in ACF and CarePayment Founders Fund in 2010 and 2011.
18
Original investments in ACF on 1/1/2011 and 6/1/2011.
2

70117075.1

EXHIBIT 1

Exhibit 1
Page 1

100%

80%

Aequitas
Wealth
Management, LLC
(DE)

100%

Exhibit 2
Page 1

NOTE: Does note include inactive


and non-operating entities

LP

Private Advisory
Group, LLC
(WA)

68.2%

Aspen Grove
Equity
Solutions, LLC
(OR)

60%

100%

ML Financial
Holdings, LLC
(DE)

100%

17.9%

Aequitas
International
Opportunities LP
(Cayman Islands)

GP

Aequitas
International
Holdings, LLC
(DE)

100%

Innovator
Management, LLC
(DE)

Innovator
Holdings, LLC
(DE)
51%

AAM Fund
Investment, LLC
(DE)
100%

100%

92.1%

100%

100%

Executive
Falcon, LLC
(OR)

79%

23%

32.9%

Ledgestone
Property
(DE)

100%

Ledgestone
Ledgestone
Management, LLC Holdings, LLC
(DE)
(DE)

32.9%

Aequitas
Senior Housing
Operations, LLC
(DE)

29.2%

MOGL Loyalty
Services, Inc.
(DE)

7.1%

100%

100%

100%

<.1%

9.9%

80.3%

Ivey
Performance
Marketing, LLC
(OR)

100%

100%

95.4%

5.9%

Cloudward, Inc.
(DE)

~3%

~3%

Syncronex, LLC
(DE)

100%

46.3%
Aequitas
Income
Protection
Fund, LLC
(DE)

8%

Campus
Student
Funding, LLC

Certified Security
Solutions, Inc.
(OR)

Canas Feast
Winery, L.L.C.
(OR)

Aequitas
Partner Fund, LLC
(OR)

83.6%

APF
Holdings, LLC
(OR)

Skagit
Gardens, Inc.
(WA)

Gridbox
Media, LLC
(DE)

100%

Aequitas 8.1%
Holdings, LLC
Marketing Services
Platform, Inc.
(DE)

10%

Window Rock/
Aequitas EIF
Aequitas Residential
Debt Fund, LLC
Recovery Fund, L.P.
(DE)
(DE)

Independence
Bancshares, Inc.
(SC)

ETC Global
Group, LLC
(DE)

24.3%

Aequitas 11%
Aequitas
ETC Founders
WRFF I, LLC
Fund, LLC
(DE)
(DE)
LP
28.9%

15.4%

Aequitas
Enhanced
Income Fund, LLC
(DE)
100%

Aequitas
Income
Opportunity
Fund, LLC
(OR)

100%

Aequitas
Investment
Management, LLC
(OR)

100%

Aequitas
Private Client
Fund, LLC
(DE)

Aequitas
Commercial
Finance, LLC

Argentus
Partners, LLC

75%

SCA
Holdings, LLC
(WA)

25%

Aequitas
Income
Opportunity
Fund II, LLC
(DE)

12.6%

Strategic
Capital
Alternatives, LLC

Alternative
Capital
Advisers, LLC
(DE)

4.9%

Aequitas
Hybrid Fund, LLC
(OR)

Aequitas 14%
Holdings, LLC

EDPlus
MotoLease, LLC
Holdings, LLC
(DE)
(OR)

100%

75%

Aequitas
Enterprise
Services, LLC
(DE)

100%

FOR INTERNAL PURPOSES ONLY; DO NOT DISTRIBUTE

25%
Spouting
Aequitas Capital
Rock Financial
Opportunities GP, LLC
Partners, LLC
(DE)
(DE)
GP; 1% LP

2.7%

Aequitas Capital
Management, Inc.
(OR)

Aequitas Capital
Opportunities
Fund, LP
(DE)

51.9%

3.6%

Executive
Citation, LLC
(OR)

CarePayment
Technologies, Inc.
(OR)

Aequitas Asset
Management
Oregon, LLC
(DE)
100%

100%

QuarterSpot, Inc.
(DE)

ACC Funding
Trust 2014-1
(DE)

ACC
MotoLease
Holdings 1, LLC Financial, LLC
(DE)
(OR)

Aequitas Senior
Housing, LLC
(DE)

100%

Portland Seed
Fund II, LLC
(DE)

The Hill
Land, LLC
(OR)

100%

CP Funding
I Trust
(DE)

CP Funding I
Holdings, LLC
(DE)

Aequitas Wealth
Hickory Growth
Management
Partners, LLC
Partner Fund, LLC
(DE)
(DE)

100%

Aequitas
Corporate
Lending, LLC
(OR)

100%

100%

Aequitas
Holdings, LLC
(OR)

Aequitas
Management, LLC
(OR)

Filed 03/14/16

ACC Funding
Series Trust
2015-5
(DE)

ACC
Holdings 5, LLC
(DE)

~5.5%

CarePayment,
LLC
(OR)

Pipeline Health Unigo Student


Holdings, LLC
Funding, LLC
(DE)
(DE)

~7.1%

100%

ACC
CarePayment Campus Student
F Plus
Holdings, LLC
Funding, LLC
Holdings, LLC
(DE)
(OR)
(DE)
100%
100%
100%

100%

Aequitas
Commercial
Finance, LLC
(OR)

100%

Aequitas Operating Entity


Aequitas Managed Fund
Private Credit
Private Equity
Other
On Chart in Other Area

83.6% Ownership
100% Control

Document 13-1

100%

ACC Funding
Trust 2014-2
(DE)

ACC
Holdings 2, LLC
(DE)

Aequitas
Private Client
Fund, LLC

Aequitas
Peer-To-Peer
Funding, LLC
(DE)

ACC
C Plus
Holdings, LLC
(DE)

100%

100%

100%

Ownership Relationship
Trust Beneficiary Relationship
Investment Advisory Relationship

January 4, 2016

Aequitas Entity Structure

Case 3:16-cv-00438-PK
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